What is a National Bank?

Published by Thomas Herold in Economics, Laws & Regulations

'National Bank' is explained in detail and with examples in the Laws & Regulations edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

National Bank refers to one of several different concepts depending on which country a person is contemplating. Within the universe of banking in developing countries, it relates to banks which are owned and operated by the nation. It can also mean a private bank that operates on a national scale (rather than internationally or locally). In the past, many economists utilized the term interchangeably with central bank. Examples of this are the National Bank of Ethiopia and the National Bank of Cambodia. These central banks bear the responsibility of establishing and managing monetary policy in their own sovereign nations and economies.

In the United States today, the phrase National Bank most commonly refers to any commercial bank which holds its charter from the Comptroller of the Currency in the Department of the Treasury. Such banks operate under the auspices of the Federal Reserve as member institutions. They are a part of the system because they fall under the regulatory umbrella of the district Federal Reserve Bank. Such national banks have the ability to engage in the United States Treasury Bonds auctions and procedure. They are required by law to be members in good standing with the FDIC Federal Deposit Insurance Corporation.

These national banks are critically important components of any nation’s financial and banking system. Only states that possess an effective banking system will be able to maintain a financially stable economy. It is not important what the name of the regulatory oversight banking institution or board proves to be, whether it is Federal Reserve, Central Bank, or Ministry of Finance.

National Banks serve other crucial roles as well. They assist in the posting of routine daily transactions via their regional Federal Reserve Bank, as with Fed bank wires. The Fed requires them to create call reports every quarter and to release these reports to the general public.

The very first national bank within the United States became established using the plans developed by George Washington. This Revolutionary War era bank for the U.S. was originally called the Bank of North America. They subsequently renamed it the First Bank of the United States. It became later succeeded by the Second Bank of the United States. None of these still survive today. The Federal Reserve Bank took over the functions of such banks on December 23, 1913.

In today’s banking system, the Federal Reserve System requires that all banks include the word National as part of either the official name or in the name’s official acronym National Association in the form of NA as part of the legal name for the national bank. A good example of this configuration of the name is Citibank, N.A.

Other banks that are not among these national banks can be chartered as state banks. Each state government may charter a bank under their state department of banking. In any case, all deposits at these state chartered banks as well as the national banks will be fully insured up to the $200,000 maximum amount per account by the FDIC Federal Deposit Insurance Corporation.

One advantage which the national banks gain under the charter of the National Bank Act is an exemption from any predatory lending laws or state usury laws enforced by the state where their headquarters lie. Federal Banks do not suffer from caps on interest rate charges. Instead, they are simply required to disclose all fees, rates, and terms to the customers per the regulations set out by the Truth in Lending Act.

It is an interesting paradox that not every bank bearing the designation of national banks has branches and business throughout the United States. There are banks of this category that only operate in a single state, county, or even city. There is also no reason to confuse the national banks with the Federal Savings Associations, such as Federal Savings Banks and Federal Savings and Loans (the Federal thrifts). These financial institutions are regulated and chartered by the Office of the Comptroller of the Currency under the umbrella of the Treasury Department.

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The term 'National Bank' is included in the Laws & Regulations edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.